Despite mounting scepticism, financial trends suggest that ESG is here to stay even if it is under a new name. Dan Byrne explains why
You’d be forgiven for doubting the staying power of the environmental, social and governance (ESG) movement given the current wave of negativity. After all, the stories of pushback are mounting.
Granted, most are coming from the US. Republicans and fiscal conservatives are openly hostile to the term. They are led by people such as Texas Governor Greg Abbott and Florida Governor/presidential contender Ron DeSantis, who dismiss the concept as “woke capitalism”, restricting business and harming profits.
But the old saying still has weight: “If America sneezes, the world catches a cold.”
It’s enough negativity to make investors more wary of ESG, and boards wonder whether they need to bother with it.
Is this backlash a legitimate threat to ESG? Not from where we’re standing.
Follow the money
The main reason ESG will survive the backlash is that the money simply isn’t following the rhetoric. ESG critics can be as loud as they want, but they’re not making the corporate world think differently.
Two-thirds of respondents to a 2023 Bloomberg survey expect firms to continue incorporating ESG metrics into their business.
Meanwhile, financial services firm Morningstar Inc. has released new data showing that the success of anti-ESG funds has fallen dramatically from its peak in the third quarter of 2022. This peak was minor compared with the total value of ESG assets.
In other words, ESG priorities remain fixed, and the money working against them is dwindling.
The only thing likely to suffer from this wave of negativity is the actual term: ‘ESG’.
Rechristening ESG
The true measure of the longevity of ‘ESG’ is that many in the pro-ESG camp are willing to part ways with the term.
Larry Fink, head of BlackRock Inc, has said he no longer uses it because of how politicised it has become. Even McDonald’s has done away with it.
Meanwhile, the same two-thirds of respondents to the Bloomberg survey said that while firms would keep pursuing ESG, they would stop using the acronym.
But none of these groups are abandoning the principles underpinning ESG.
You might call it the one potential victory of the anti-ESG brigade: a rechristening – purely because firms are worried about reputational risk.
Before the current backlash, it was estimated that the value of ESG assets would reach US$50 trillion by 2025. At the start of this year, they were estimated at $41 trillion and growing.
If, in five years, we’re calling ESG something different, it probably won’t dent the underlying principles that investors, consumers and many politicians care so vocally about.
So, while the ESG backlash may be loud, we’re not seeing any evidence that its principles are losing ground.
Hence, directors and other corporate leaders hearing the noise from the US and thinking the concept is almost irrelevant should think again.
ESG remains ESG, even if its name changes.
Dan Byrne is a journalist with the Corporate Governance Institute
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